China and Columbia: Partners in crude oil investment

Mauricio Cardenas, Mines and Energy Minister of Columbia recently announced plans to shift the country’s attention to Asian markets. The move is a necessary measure amid strong demand for oil in Asia and recent developments in the U.S. energy market.  Thus, as China steps up investment in oil drilling and production, Columbia took the opportunity to step into the picture through a pipeline project.

Government-owned China Development Bank will finance a huge pipeline system, which upon completion can transport up to 600,000 bpd of oil from Venezuela and Columbia to China and selected Asian countries. Contract details are not yet finalized, but sources say the pipeline will cross the Andes and the Pacific coast.

China’s Sinochem International Corp., the country’s biggest trading company may participate in the oil investment project and will have equity holdings in the venture.

The first quarter of 2012 saw Columbia exporting an insignificant volume of 56,000 bpd of oil to China, versus the latter’s 5.69 million bpd total import requirements. The Latin American country is nearing its 1 million bpd target, and estimates that in ten year’s time, daily output may reach 1.5 million bpd

Presently, the U.S. is Columbia’s biggest client, purchasing 50 percent of the country’s exports. Recently, the U.S. has been veering away from coking coal as new U.S. discoveries of natural gas resources (like shale) show very bright prospects.

Cardenas said “It is absolutely true, and not just with coking coal but with thermal coal. We know that there will be less demand there.”

Sinochem has been investing in oil assets over many years. Some three years ago, it purchased oil assets of Syria and Columbia from Emerald Energy.  Another round of purchases occurred in February as it acquired pipelines from Total SA.

According to Cardenas, more than a hundred oil and gas firms, both foreign and local, have participated in its auction for oil concessions. A handful of buyers came from China. He said results will be announced towards the end of year, but he disclosed that China expressed interest in forging a solid energy partnership with Columbia.

Both countries are also exploring other joint venture projects, including development of coltan reserves, a type of mineral that can be used as a conductor, and the establishment of railway systems towards the Pacific coast for the transport of coking coal to China and elsewhere in Asia.

By: Chris Termeer